Wednesday, February 12, 2014

Nifty chart: a mid-week update (Feb 12, ‘14)

The IIP number was –0.6%, which means a contraction in India’s industrial production for the third straight month. But it was better than the consensus estimate of –0.8%. There was some good news too.

CPI inflation for Dec ‘13 was 8.79% – lower by more than a percentage point from the previous month – thanks to moderation in food prices. Exports rose and imports contracted, helping to reduce the current account deficit. The Rupee gained a bit against the US Dollar.

Tata Motors and Tata Steel positively surprised the market with their Q3 results. But that didn’t boost their stock prices much. Nifty has recovered almost 170 points from last week’s low of 5933, mainly because of DII buying support. FIIs have been in profit booking mode in Feb.

Nifty continues to trade within the ‘rectangle’ consolidation zone, gradually recovering from the brief drop below the rectangle and its 200 day EMA. The rally has been weak, and is facing resistance from the falling 20 day EMA.

The good news is that Nifty is in bull territory above its 200 day EMA. The bad news is that the 20 day EMA is below the 50 day EMA – which is short-term bearish. Also, the index has yet to retrace 50% of its fall from its Jan ‘14 high of 6355 to its Feb ‘14 low of 5933 – keeping the intermediate down trend in force.

Daily technical indicators are in the process of recovering from oversold conditions, but remain in bearish zones. MACD is about to touch its falling signal line in negative zone. ROC has crossed above its 10 day MA, but is yet to enter positive territory. RSI is showing weakness by staying inside oversold territory for the 7th straight day. Slow stochastic has managed to climb out of its oversold zone.

The consolidation within the rectangle is likely to continue for some more time. Times like these scare away many small investors, while experienced investors use such index weakness to add to their holdings by keeping suitable stop-losses (or hedging in the F&O segment).